10.9% gain for non-profit health-care investments
By Timothy Inklebarger | July 11, 2011 4:27 pm
Non-profit health-care organizations' investments overall returned an average 10.9% in the year ended Dec. 31, according to a Commonfund study.
Following the 18.8% average return in 2009, the results represent the best back-to-back annual performance in the nine years Commonfund has conducted its Benchmarks Study of Healthcare Organizations, according to a Commonfund news release.
The average return in 2010 for study participants' defined benefit pension plans was 12.3%, down from 21.5% in 2009.
“We look at (the high returns in 2010) as having been the tail end of the rebound that began in 2009,” William Jarvis, managing director of the Commonfund Institute, an organization that promotes investment knowledge and best practices in financial management, said in a telephone interview. “The question for health-care institutions and other non-profits is what are going to be the sources for rebuilding their endowments. We don't know what the investment returns will be (in 2011). It seems not certain that we are going to have another 21% year.”
Mr. Jarvis said that as investment returns decline, health-care organizations could become increasingly reliant on using endowment money for operating expenses, particularly at smaller organizations that cannot use economies of scale to reduce costs.
Non-profit health-care organizations' investment returns in fiscal year 2010 trailed those of foundations and operating charities, which returned 12.5% and 11.6%, respectively.
John Griswold, executive director of Commonfund Institute, said in the Commonfund news release that health-care organizations typically have higher allocations to fixed income than foundations and operating charities, which likely caused health-care organizations' returns to be lower.
For the year ended Dec. 31, 37% of non-profit health-care organizations' investible assets were in fixed income; 24% in domestic equities; 17% in alternatives; 15% in international equities; and 7% in short-term securities, cash and other.
Domestic equities had the best returns for the health-care organizations with an average 17.8%; followed by international equities, 12.8%; alternatives, 9.9%; fixed income, 7.8%; and short-term securities/cash, 1.1%. In the alternative strategies category, distressed debt had the best returns with 15.6%; followed by commodities and managed futures, 15.4% combined; and energy and natural resources, 14.2% combined. Marketable alternative strategies — hedge funds, absolute return, market neutral, long/short, 130/30, event driven and derivatives — returned 7.4%.
The study included 90 health-care organizations, representing a combined $102.6 billion in investible assets and $42.3 billion in defined benefit plan assets.